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Tennessee colleges and universities concerned about GOP tax plans

Colleges and universities in Tennessee are raising concerns about proposed Republican tax plans, which if passed could include a tax on the endowments of private colleges and tuition waivers for graduate students.

Tennessee colleges and universities concerned about GOP tax plans

The Tax Cuts and Jobs Act would count tuition waivers as income and tax the amount.
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Jamie Grieg, teaching assistant in the College of Communication and Information at UT, is among graduate students that could be affected by a proposal to eliminate tax deductions on tuition waivers.(Photo: Rachel Ohm/ /News Sentinel.)Buy Photo

Colleges and universities in Tennessee are raising concerns about proposed Republican tax plans, which, if passed, could include a tax on the endowments of private colleges and tuition waivers for graduate students.

A Senate version of the legislation, presented Thursday, includes the same excise tax proposal on large private college endowments but does not include the provision that would treat graduate student tuition waivers as taxable income.

The American Education Council estimated earlier this month that if everything asked for in the House version of the legislation passes, it would increase the cost to students of attending college by more than $65 billion between 2018 and 2027.

"Taken in its entirety, the House tax reform proposal would discourage participation in post-secondary education, make college more expensive for those who do enroll, and undermine the financial stability of public and private, two-year and four-year colleges and universities," the council said in a statement condemning the plan.

Criticism of the Senate plan has been slower though the tax on endowments has remained a sticking point in higher education.

Tax on private endowments could hurt student access, schools say

The proposal listed in both plans would place a 1.4 percent excise tax on endowment earnings at large private schools where endowment assets exceed $250,000 per student.

In Tennessee, the proposal would only affect Vanderbilt University, though officials at smaller schools and the University of Tennessee say they are concerned it could open the door to taxes on their endowments down the road.

In a statement on the House tax reform package, Vanderbilt Chancellor Nicholas Zeppos called the plan "misguided" and said it would threaten Opportunity Vanderbilt, an undergraduate financial aid program that meets 100 percent of a student's financial need with packages that do not include loans.

Since 2009, more than 9,800 students have received aid through the program.

“The proposed excise tax on certain university endowments is a damaging provision that would tax donor funds, make college more expensive, and reduce support for academic programs and research," Zeppos said. "Under the proposal, Vanderbilt’s endowment would lose an estimated $7 million a year – the equivalent of supporting about 104 students on full cost-of-attendance scholarships."

Marjorie Hass, president of Rhodes College in Memphis, echoed those concerns, saying that while the provision doesn't currently apply to schools with smaller endowments, access to education is an issue that college administrators everywhere are invested in.

"Endowments are a key way colleges have of lowering costs," Hass said. "We are able to make tuition costs more affordable because we can subsidize tuition payments by drawing on the endowment. If that money is taxed, obviously there is less available for financial aid and the cost of college goes up."

Cuts to charitable donations could likely be through changes

The endowment proposal doesn't currently apply to public colleges and universities, but Rickey McCurry, president and CEO of the University of Tennessee Foundation, said it opens the door for such an expansion to eventually happen.

The tax plans also include provisions for charitable giving that could hurt private donations to all universities, he said, such as increasing the standard deduction and phase out of the estate tax, both of which could discount incentives for people to make charitable donations.

About three percent of the UT system's budget, or about $76 million, is currently generated from endowment earnings and gifts.

Another provision would also repeal a rule that allows taxpayers to deduct 80 percent of a charitable gift for the right to purchase tickets for college and university athletic events.

"Charitable giving is a critical part of our ability to execute our mission of research and education, not just at UT but across the nation," McCurry said. "It's early in the process but we're trying to make sure everyone is aware of the particular impact this could have on charitable gifts."

Graduate students opposed to tax on tuition waivers

Also at stake are the loss of tax deductions for student loan interest, limitations on colleges from entering into tax-exempt bond agreements and the elimination of tax deductions for graduate student tuition under the House plan.

That provision is not included in the Senate version released Thursday, but the House version has raised concerns among graduate students.

"There's a large international graduate school population that are particularly worried about it because we’re already living on a very limited stipend and having to pay fees," said Sergio Bedford, a graduate student in retail, hospitality and tourism management at the University of Tennessee and president of the Graduate School Senate.

"It’s already a struggle for grad students to pay those fees, so having more of a tax come out of those stipends would make it more challenging," he said.

UT currently enrolls just over 6,000 graduate and professional students and has goals to increase the number of graduate degrees awarded, including through increases in funding for graduate research and fellowships.

Jamie Greig, a teaching assistant in communications and information at UT, earns about $19,000 per year and receives a tuition waiver worth $30,000 for the year.

He said the waiver is a major incentive to students to pursue graduate education. If it were to be taxed his net income would be about $1,000 per month, leaving him with just a few hundred dollars to live on after paying $700 in rent.

"I think the majority would have to stop going to university if they had to pay that amount," said Greig, who is from Scotland. "Of the people I know, I doubt half of them would have enough money leftover. The only way someone could remain as a graduate student is if they had a partner that was willing to support them."

This story has been corrected from an earlier version to reflect the correct spelling of the name of Rhodes College President Marjorie Hass.